SAUL HOLDINGS, LIMITED PARTNERSHIP; SAUL CENTERS, INC., A GENERAL PARTNER; AND ALL LIMITED PARTNERS v. CINEMA 'N' DRAFTHOUSE SYSTEMS, INC.
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RENDERED:
October 11, 2002; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2001-CA-001345-MR
SAUL HOLDINGS, LIMITED PARTNERSHIP;
SAUL CENTERS, INC., A GENERAL PARTNER;
AND ALL LIMITED PARTNERS
APPELLANTS
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE GARY D. PAYNE, JUDGE
ACTION NO. 99-CI-02083
v.
CINEMA 'N' DRAFTHOUSE SYSTEMS, INC.
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
GUDGEL, JOHNSON AND SCHRODER, JUDGES.
JOHNSON, JUDGE:
Saul Holdings, Ltd. Partnership (Saul Holdings)
has appealed from an order and opinion entered by the Fayette
Circuit Court on May 23, 2001, which denied Saul Holdings relief
in its action for breach of contract against Cinema ‘N’
Drafthouse Systems, Inc., (CDS).
Having concluded that the trial
court’s factual findings were not clearly erroneous and that its
conclusions of law were correct as a matter of law, we affirm.
On April 22, 1998, Saul Holdings entered into a lease
agreement with C & C, Inc. (C & C), a franchisee of CDS.
Under
the terms of the lease, C & C agreed to operate a combination
movie theater and restaurant inside the Lexington Mall, located
on Richmond Road in Lexington, Kentucky.
As part of the
agreement, CDS consented to stand as guarantor, and to guarantee
C & C’s payment of rent and performance of the lease terms.
In April 1999, C & C defaulted on the lease and filed
for bankruptcy.
Accordingly, Saul Holdings sent notice of C &
C’s default to CDS, reminding it of its obligations as guarantor
of the lease.
After receiving the notice, CDS executed a lease
assignment and assumption agreement which essentially made CDS
the new tenant under the lease.
In a letter dated April 18,
1999, CDS informed Saul Holdings of its intention to assume the
rights, terms and obligations of C & C’s lease, and stated in
bold print that “[i]n accordance with the Corporate Guaranty
[agreement], notice is hereby given that Landlord’s [Saul
Holdings’s] failure to deliver the executed Assignment and
Assumption Agreement within thirty (30) days shall result in the
release of the Corporate Guarantor from liability under the
lease” [emphasis added].
According to CDS, the letter was faxed
to the office of M. Victoria Dean, a lawyer who represented Saul
Holdings.
Having received no response from Saul Holdings, CDS did
not assume tenancy of the movie cinema and restaurant.
On June
14, 1999, Saul Holdings filed an action in the Fayette Circuit
Court to enforce the original corporate guaranty agreement
against CDS.
CDS responded by claiming that it had fulfilled its
obligations under the guaranty agreement by executing the lease
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assignment and assumption agreement; and that Saul Holdings, by
its failure to respond within 30 days to CDS’s assumption of the
lease as referred to in the letter faxed on April 18, had
released CDS from all further obligations under the guaranty
agreement.
CDS also filed a counterclaim against Saul Holdings
for damages related to Saul Holdings’s failure to deliver the
premises to CDS.
After the trial court denied the parties’ cross-motions
for summary judgment, a bench trial was held on May 9, 2001.
On
May 23, 2001, the Fayette Circuit Court entered an order and
opinion in favor of CDS.
The trial court found that the action
taken by CDS in executing the assignment of the lease on April 18
was valid, and that Saul Holdings’s failure to execute the
assignment released CDS from liability under the lease as
guarantor.
The trial court also dismissed CDS’s counterclaim.
This appeal followed.
Saul Holdings advances numerous arguments on appeal.
In regard to CDS’s contractual obligations, Saul Holdings argues:
(1) that by the terms of the agreement, the lease assignment and
assumption agreement that was executed by CDS did not relieve CDS
of liability under the corporate guaranty; (2) that the lease
assignment and assumption agreement was invalid because it was
not signed by both personal guarantors; (3) that the lease
assignment and assumption agreement was not in substantial
compliance with the model assignment document attached to the
original lease; and (4) that the lease assignment and assumption
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agreement was invalid because it was not approved by a
secretary’s certificate.
In regard to the trial court’s
dismissal of CDS’s counterclaim, Saul Holdings argues that it was
prejudiced by the dismissal because the counterclaim amounted to
a judicial admission that CDS considered itself a tenant under
the lease; and therefore, it was liable to Saul Holdings for rent
payments.
Finally, in regard to the trial court’s finding that
CDS “was entitled to possession upon default of C & C but that
such possession was to be obtained through C & C pursuant to the
agreement,” Saul Holdings argues that CDS could have taken
possession of the premises upon C & C’s default, but that it
failed to do so, giving Saul Holdings the right to lock them out
of the premises.
Since this case was tried before the court without a
jury, its factual findings “shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of
the trial court to judge the credibility of the witnesses.”1
A
factual finding is not clearly erroneous if it is supported by
substantial evidence.2
Substantial evidence is evidence of
substance and relevant consequence sufficient to induce
1
Kentucky Rules of Civil Procedure (CR) 52.01. See also
Lawson v. Loid, Ky., 896 S.W.2d 1, 3 (1995); A & A Mechanical,
Inc. v. Thermal Equipment Sales, Inc., Ky.App., 998 S.W.2d 505,
509 (1999).
2
Owens-Corning Fiberglas Corp. v. Golightly, Ky., 976 S.W.2d
409, 414 (1998); Uninsured Employers’ Fund v. Garland, Ky., 805
S.W.2d 116, 117 (1991); Faulkner Drilling Co., Inc. v. Gross,
Ky.App., 943 S.W.2d 634, 638 (1997).
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conviction in the minds of reasonable people.3
“It is within the
province of the fact-finder to determine the credibility of
witnesses and the weight to be given the evidence.”4
However, “[t]he construction and interpretation of a
contract, including questions regarding ambiguity, are questions
of law to be decided by the court.”5
“The cardinal rule of
contract interpretation is that all words and phrases in the
contract are to be given their ordinary meanings.”6
Under
Kentucky law, contracts should be interpreted according to the
parties’ mutual understanding at the time they entered into the
contract and “‘[s]uch mutual intention is to be deduced, if
possible, from the language of the contract alone.’”7
Thus, as to
the trial court’s factual findings, we are limited in our review
to determining whether a finding is clearly erroneous; but as to
any legal issue involved in the interpretation of the lease
3
Golightly, supra at 414; Janakakis-Kostun v. Janakakis,
Ky.App., 6 S.W.3d 843, 852 (1999)(citing Kentucky State Racing
Commission v. Fuller, Ky., 481 S.W.2d 298, 308 (1972)).
4
Garland, supra at 118.
5
First Commonwealth Bank of Prestonsburg v. West, Ky.App.,
55 S.W.3d 829, 835 (2000)(citing Hibbitts v. Cumberland Valley
National Bank & Trust Co., Ky.App., 977 S.W.2d 252, 254 (1998)).
6
Fay E. Sams Money Purchase Pension Plan v. Jansen, Ky.App.,
3 S.W.3d 753, 757 (1999)(citing O’Bryan v. Massey-Ferguson, Inc.,
Ky., 413 S.W.2d 891 (1966)).
7
Nationwide Mutual Insurance Co. v. Nolan, Ky., 10 S.W.3d
129, 131-32 (1999)(quoting Simpsonville Wrecker Service, Inc. v.
Empire Fire & Marine Insurance Co., Ky., 793 S.W.2d 825, 828-29
(1990)).
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agreement, our review is de novo, and we need not give any
deference to the trial court’s legal conclusions.
Since there is substantial evidence in the record to
support the trial court’s factual findings that the April 18
assignment was an authentic document which substantially complied
with the model assignment in the original lease agreement, the
only remaining matter to consider in addressing Saul Holdings’s
first issue on appeal are the legal questions of whether CDS was
in compliance with the original guarantor agreement when it
executed the assignment, and whether Saul Holdings’s failure to
respond to that assignment constituted a release of CDS from all
liability under the lease.
We affirm the trial court’s ruling as
to both aspects of this question of law.
The “Corporate Guaranty” agreement attached to the
original lease provided in pertinent part as follows:
As an inducement to Corporate Guarantor
entering into this Corporate Guaranty, and in
consideration thereof, if this Lease is
assigned in accordance with Article 15(h) of
the Lease and the Corporate Guarantor,
pursuant to said assignment required
Landlord’s execution of an assignment
document, then Corporate Guarantor shall
deliver to Landlord a notice of the
assignment (“Assignment Notice”) in
accordance with the notice provision as set
forth in Article 36 of the Lease, an
“Assignment and Assumption Agreement” in a
form substantially similar to that set forth
in Exhibit E of this Lease, executed by
Tenant, Personal Guarantors, Corporate
Guarantor and Assignee, for the Landlord’s
execution. Landlord shall execute said
Assignment and Assumption Agreement within
thirty (30) days after its receipt. Subject
to the following, if Landlord fails to
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execute said agreement within the thirty (30)
day period, then notwithstanding anything
contained herein to the contrary, Corporate
Guarantor shall be released from any further
liability under this Lease from and after the
expiration of said thirty (30) day period.
Corporate Guarantor’s Assignment Notice shall
specifically contain therein a statement, in
bold, that Landlord’s failure to deliver the
executed Assignment and Assumption Agreement
(provided the same is substantially similar
to that form attached hereto as Exhibit E)
within thirty (30) days after receipt of
same, shall result in the release of the
Corporate Guarantor from liability under the
Lease, from and after the expiration of said
thirty (30) day period [emphasis added].
Article 15 (h) of the original lease agreement clearly
allows for an assignment of the lease to CDS, and the guaranty
agreement clearly details the process to be followed in the event
of such an assignment.
The trial court found that all of the
procedural steps were met.
Further, the trial rejected Saul
Holdings’s allegations that the assignment was not properly
executed by both personal guarantors and that the assignment
document was not in substantial compliance with the model
assignment document appended to the original lease by making
factual findings to the contrary.
As to Saul Holdings’s argument
that the assignment was invalid because a secretary’s certificate
was not attached to it, we agree with the trial court’s legal
conclusion that such a certificate was not mandated by the terms
of the guaranty agreement.
Accordingly, we hold that the trial
court’s factual findings that all of the procedural mandates of
the clause were met were supported by substantial evidence and
thus were not clearly erroneous; and that the trial court
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correctly concluded as a matter of law that the applicable
contract language was not ambiguous, and that the contract
provisions operated to release CDS from liability under the lease
guaranty when Saul Holdings failed to execute the assignment
within 30 days of the notice of assignment as required by the
terms of the contract.
Furthermore, we see no merit in Saul Holdings’s
argument that it was prejudiced by the trial court’s dismissal of
CDS’s counterclaim.
Since the counterclaim was not a judicial
admission by CDS that it was liable under the lease, the trial
court’s dismissal of the claim did not prejudice Saul Holdings.
Finally, Saul Holdings’s claim that it was not required
to deliver possession of the premises to CDS is moot.
The
property has long since been rented to another tenant, and the
trial court made no finding that Saul Holdings was liable for
damages due to its refusal to deliver the premises to CDS.
For the foregoing reasons, the judgment of the Fayette
Circuit Court is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEE:
Sean M. Pierson
Lexington, Kentucky
John P. Watz
Lexington, Kentucky
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